scarlet: i'm scarlet fu. this is "bloomberg etf iq," where we focus on the assets, risks, and rewards offered by exchange-traded funds. calling all contrarians. do downtrodden dogs bark the loudest? one fund goes long on the worst-performing countries, but -- betting they may have the highest potential to revert to the mean. measuring liquidity here and how do you get nervous institutional investors at the idea of fixating on an etf trading volume to look at the liquidity in the underlying stock in the basket? so far this year, brent crude has sunk from the low 50's to as -- has long from the low 50's to

as much as $80 a barrel, so we dig into etf's designed to track changing energy fundamentals. whether you embrace or fear etf's, there is no getting around their influence. bloomberg intelligence etf analyst eric balchunas kicks things off with a check on flows. and given the news flow this week, we have to go global. eric: big week, g7, north korea. what is going on with international flows? so there are two ways we look at it. we have regional etf's and broad ones that do all of emerging markets or all of international developed, europe. that is the blue line. it's been easy to make money buying the whole region and hanging on. but over the past couple of months, that trade has died. basically e.m. and ee are both flat, and the flows have detected it. the white line here, which you rarely see above this one is single country etf flows.

that is where you target it. investors are looking to pick their battles as the regional etf's have flattened out. where are they choosing their battles? let's look at the top five single country etf's by flows. you see here, china, $2.7 billion there, and china has been up 8% this year. 80% over the past two years. china is the superstar in terms of picking a single country etf. brazil is down this year but it was up so much in the past two years, some of this money will come out as investors figure out it is going down. saudi arabia is interesting because $231 million there, that is up 20% this year. this etf is new and all those flows are fresh. so i would be surprised to see more etf's launching to take advantage of the advantages and -- advantage of the interests in saudi arabia. and now let's take a look at the outflows by single country etf's. remember that japan train that was so easy? it is not doing that bad. $1.6 billion out this year. up 1%, but that trade is overhead money slowly coming out of the currency hedge.

then you have germany, india. a lot of this is performance-based. scarlet, look. it was easy to just buy efa or eem for a while, but these are flat. investors seem to be choosing their battles when it comes to choosing etf's. scarlet: given the news flow this week, whether it is the u.s. falling out with canada, other traditional allies, the trump-kim summit, there is plenty to discuss. let's bring in joe barrato and carolina wilson. joe, we talk about the global events happening, central-bank meetings this week as well. are any of these international events investable? what bearing to they have on your short-term or long-term strategy on international stocks? joe: i think the trends are definitely changing for investors. start thinking about looking at overseas. the point that were just brought up about looking at the individual countries, that is a great way for investors to be able to do that. when you see the dollar on decline and inflation on the rise, that is a sign that international markets are strengthening. look at where u.s. equity markets are, an all-time low and

you are about to see a return reversal there. most of those foreign countries, saudi arabia, an oil-producing countr they wi benefit from that. investors should think about getting more granular. a lot of the international money today is highly correlated to efa. being tied to efa may not be what you want. it moves similar to the s&p domestic market. scarlet: eric talked about single country etf's. did we see any flows into the south korean etf in the wake of the trump-kim summit? carolina: we did see an outflow last friday ahead of the trump-kim meeting, but surprisingly, following that, trading was pretty muted for the fund. where we did see some interesting activity was with silver etf's. that's the global silver miners fund. sil on monday doubled its average value for the past year. and while g7 tensions put pressure on the dollar and that has lent support to the silver market, if you drill down into the holdings, the chunkiest

exposures are in canada, mexico, south korea. all this fund needs is china and it is basically a home run in terms of the countries most mentioned by donald trump. eric: you are looking at an etf, dogs of the world, which is a pretty cold name for addressing countries that have not done as well. probably the only international etf you can look up and see that canada and qatar are the top two allocations. explain the ratiale. joe: the rationale is very similar to the dogs of the dow. we are buying the worst countries over a 12 month period of time, holding those into deep value play, expecting mean reversion. over time, that is similar to what happens with the dow strategy. buying the worst in anticipation of a return reversal. if you think about the countries that are in there, canada, uae, pakistan, qatar, even israel. they all had things happen to them last year that brought them down, whether oil, geopolitical,

even technology runs in a company inside israel. eric: conversely, you have one that just tracks momentum in terms of countries. dorsey wright, using highly technical analysis. what is that one doing? joe: that is buying countries up momentum level. country rotation is buying things as it has had that strength and is looking for those companies to continue that strength, and eventually as it dissipates off it will sell off. we have been working with dorsey wright very long, and this is part of their methodology, using relative strength to deliver those types of returns over time. carolina: going back to dogs, i had a question about underlying liquidity. if we look at the fund's holdings, they are not super liquid. the fund is tracking at a 21% premium for a discount.

how do you calm investors who may be concerned about their slippage eating in? scarlet: good question. joe: that's a common question that comes up a lot. we look carefully, when we built the universe around us, we thought a lot about making sure it was very liquid. so you work with your market makers, so when an investor comes in, you want to give them the ability to have access. the early stages for this fund, we were using etf's to get our exposure. we are really just starting to get into the countries and individual securities that are there, but it is very liquid. we have worked with an indexing team that built the index to look very closely at making sure you are buying companies that are very liquid. that is the thing. when you are going to buy a small etf, you look at the underlying holdings and you have to make sure there is liquidity there. scarlet: something we will discuss later on in the program as well. finally, i want to get to the federal reserve. this week is busy with central-bank action.

you spent 12 years as an analyst at the fed. you played baseball with alan greenspan. you say he is a good hitter, by the way. joe: he is. scarlet: do you see a risk for policy error this year? joe: policy error? like rising interest rates? scarlet: raising too quickly, not enough? joe: you have to look at what is going on. you have inflation on the rise. i think that has a lot to do with what the fed is doing. i think raising rates right now, at this time, i think it depends on how quickly they will go. but i think it's already built into the equation. we are in a rising rate environment. we are going to be here for a long time, and investors really need to think about and understand what the world will be like in this type of environment. rates will be on the rise for much longer periods of time. when they do decline, they will usually be built around recessions. everyone is anticipating a recession because we have not had one in a while, but it is not there. scarlet: joe barrato, thank you so much, and bloombergs carolina wilson. coming up, kat sweeney from from spider america's individual sales will be joining us. she tells us how institutions are using etf's and how consultants are perhaps getting in the way. and speaking of international etf's, one fund that caught our

attention this week, the vanguard ftse european etf. uncertainty in europe prompting an exit. investigators pulling with a $230 million from this etf on monday, the most since the aftermath of the brexit vote two years ago. a reminder, you can see all of our charts on the bloomberg on gtv, that's including from the charts we just showed you. this is "bloomberg etf iq." ♪ scarlet: i'm scarlet fu.

this is "bloomberg etf iq" every week we run you through the etf lifecycle, made up of three main stages. first up is the filing. the alps clean energy etf has filed with the sec. it trades under the ticker aces, and the fund will target u.s. and canadian companies in the clean energy sector, including renewables.

stage two is the launch. the value-based fund from goldman sachs and billionaire paul tudor jones begins trading under the ticker just. it will invest in the top 50% of the russell 1000, according to rankings compiled by jones' non-profit, just capital foundation. just corporate behavior includes worker pay, a safe workplace, privacy protection, and truthful advertising. and for some, the final stage is liquidation. the deutsche extractor hedged equity etf is delisting after three years on the market. debs invested in small caps, or developed market equities while hedging out currency risk. it is time to get passive aggressive, where we track the shots fired in the battle between active and passive investors. for all the concerns that institutions are abandoning active managers, adopting etf's en masse, the numbers don't bear that out. who better to discuss this than kat sweeney, head of spider america's institutional sales.

i'm so excited i cannot get my words out. surveys show that institutions are increasingly using more etf's, but they manage so much money it is only about 1% of assets under management by institutions overall. and this is according to eric's book, which i stole from liberally. it is a pretty small proportion. i was pretty surprised, i thought it would be closer to 5% or 10%. why so small? kat: i think there are two things there. one, these active managers are using etf's as part of their portfolios. we would not expt them to be a massive part of their overall weighting. also, those assets are actually fixed income, so when you think about the fixed income market, the fixed income etf market, we still call it the whiteboard. we are seeing fixed income investors starting to use etf's, but it is still in the early days. we look at it as a positive that the overall number right now is kind of small, because we think it is going to grow dramatically. scarlet: right, the growth

opportunities are therefore huge. i want to ask about consultants. there is a question what kind of role they play, whether they are responsible for a slower adoption rate of etf's. because a lot of institutions use consultants who then recommend external active managers who then, of course, if they were to recommend etf's, that would jeopardize their jobs. or perhaps, do chief investment officers need consultants so there is someone they can hold accountable in case the investment fails? kat: i take a different approach to that. as a consultant, consultants have to look at not just the investment, but also the vehicle. some vehicles fit better for their clients for different reasons. so etf's, while pensions were down, foundations were using consultants, they use etf's typically in their liquidity bucket for operational reasons. maybe a transfer of assets. now we are seeing different use cases coming up. those use cases are changing because really, the etf market has changed as well.

so the types of etf's out there, and also the management fees have come down. just last week we actually had a consultant, a reverse inquiry asking us about our senior loan product, which is advised by cfo blackstone. when we sat there, we were talking about not just how they manage the investments but also, too, they were really testing the wrapper itself, the etf wrapper and the liquidity of the wrapper. so we are seeing positive green shoots there. scarlet: let's talk a little bit about liquidity as well. when you look at volume and liquidity, everyone is trained to look at an etf's trading volume and draw conclusions from that. but it can be misleading. you can create new shares if the basket is liquid. if you look at spyv, it trades at $182,000, but implied liquidity is $182 million. if we pull up a function on the bloomberg there, that is equivalent to $5.5 billion shares traded, which make it more liquid than apple.

are institutional investors comfortable with using this implied liquidity, moving on that? kat: they are getting more comfortable. and if you look at why, the higher volatility days, more liquidity centralizes on the etf. so clients are aware of that. also, if you look at a traditional stock, you say it has a smile curve. trade more on the open and the close. etf's will actually have some volume and then a large print. that is institutional clients or even large raa's using their liquidity provider, whether it is a market maker or custodian, collecting the underlying shares and using that vehicle to find additive liquidity. we think of the screen volumes as additive to the primary liquidity, which is the underlying basket. scarlet: for every institutional investor, their fear is when somebody will spot when they make a trade. they want to do it on the down low, that is the point. you don't want everyone to say, that was you doing the trade. kat: with etf's, we have to print them, so it will be printed on and we will look at

our bloomberg terminals and see it, but you will not actually know who bought it until the filings come out, so there is some time lag. scarlet: kat sweeney from state street global advisors, thank you. full disclosure, her firm is a sponsor of "etf iq." we are drilling down into the boon pickens etf, a fund tied to legendary oil tycoon t. boone pickens. this is bloomberg. ♪ scarlet: i'm scarlet fu.

welcome to "bloomberg etf iq." for every etf that offers exposure to an asset class or a sector, it is not long before others promise the same. toby loftin is principal manager of bp capital fund advisors. it offers multiple funds focused on the energy industry. before we talk to him, eric balchunas will give us a drill down into the the etf capital boon. eric: it is a good ticker and it is apt because it is named after t. boone pickens. it really takes on his strategy for investing in energy stocks. it is not that big. $6 million, a little pricey, 85 for holding energy stocks. the average fee is about 67 in that category. but it is different come and -- it is different. here is how it is different in two ways. one, it takes stocks that are highly correlated to brent crude oil. the second way is it includes consumers of energy which acts sort of as a natural hedge.

if oil starts to go down, it will hedge. and look at boon's allocation. only 50% is energy stocks. industrials, materials, this is where the consumers are. not your typical xle pure play. so let's look at how this has performed in up and down markets. if you go back historically, you can see boon is right here. it does go down less than xlp, the producers. so you have a natural hedge going on if oil is selling off. let's go to a date when oil is not selling off and doing good. boon is lagging because largely of those consumers. so that is another cost benefit that investors will have to weigh in terms of picking this etf. scarlet: it all depends on your timing. let's bring in toby loftin. eric gave us his take. explain to us why this etf is worth 85 basis points rather than the average 67 for the industry. toby: thanks for asking. what we saw was a gap in the marketplace.

what i mean by that is most energy related etf's are married to the upstream, so exploration, production, services, even some downstream. but with what has been going on in america in the shale revolution, the abundance of supply leads to cheaper prices, particularly in natural gas, natural gas liquids. there are select industries that are going to benefit from that, fundamentally speaking. so in the same spirit as the pickens plan, having the cognizance of the demand side, we constructed this to manifest a vehicle that would allow investors to take advantage of that. scarlet: so a more holistic approach, if anything. you mentioned pickens. explain the fund or the firm's relationship with t. boone pickens? how active is he in the fund and in this particular etf? toby: i have had the privilege of being with him since 2010, been alongside him, a lot of learning experiences.

his role as chairman of the organization and really the pickens oil response index is built on the same principles as the plan. so his guiding thoughts, his thought leadership underpins it. eric: let me ask you -- if you could put your own ticker aside for a second and talk about oil and energy. every time a oil goes up, i get messages from everybody, how can i play this? they want to go into uso, they don't understand contango. and you have xle, which has a lot of broad market, and xop, which gundlach recommended. what would be your recommendation for someone looking to play a rebound in oil that is a safe retail weight? toby: glad you asked. if boone were on set with us he would say guys, it is hard to pick the tops and bottoms. that is what a lot of the xip, oih, other energy related etf's are, trading vehicles. you have to know when you are doing to get in at the right time and exit. that is why we built this, to mitigate the downside but capture the upside associated

with energy demand. scarlet: how much downside do you see in oil prices right now? obviously, oil has gone through an interesting patch lately, lots of talk that saudi arabia and russia, opec and non-opec members will be teaming up to increase production once again. toby: the fact that saudi is talking about increasing production is actually a healthy sign. the reason that's happening, you have declines that took place in venezuela, other areas where they are needing to back fill the loss. we look at it holistically. we will go about it in a way, when energy prices come off, we are going to have a benefit with the consumers and such. the price range, it will stay north of 50. when i say it, i'm talking about brent crude, not wti. but that is a pretty general range. eric: and quickly, mlp etf's. you have a mutual fund for mlp's. they were a huge hit because rates were low. how vulnerable is this area to rising rates?

do you recommend it now? toby: well, rising rates have had an impact on mlp's over history but it depends on why the rates are rising. there are periods where mlp's have done well and others were they have languished. we look at it favorably. a lot of the mess has been cleaned up from 2014 through 2017, cleaning up debt from governance issues and distribution rights. fundamentally, we are improving. scarlet: toby loftin, thank you for joining us today. toby: thank you for having me. scarlet: the etf industry has something for everyone, including those who prefer a more cautious approach to their investing. in this week's "there is an etf for that," we are highlighting one fund that offers protection during global equity selloffs. the ishares core conservative allocation etf trades under the ticker aok. it aims to mimic a conservative risk allocation strategy by

containing both fixed income and equity holdings, all with an eye on gathering income while preserving capital. approximately 70% of the fund is invested in bonds and the remaining 30% in equities. aok is a mix of sovereign, corporate, and mortgage debt, as well as equities, exclusively through ishares etf's. it has gathered $475 million in assets and carries an expense ratio of 25 basis points. aok has returned almost 70% since launching in 2008. it gets a green light in the bloomberg intelligence traffic light system, with a notice pointing towards this proprietary weighting system. eric: it is like a mini advisor and that is why they have not gotten more assets. they want to be the advisor. scarlet: advisors don't want to recommend these guys? it might put them out of a job. but it does not add value, as far as they are concerned. that does it for "etf iq." be sure to catch is at 1:00 p.m. new york time, 6:00 p.m. in

london. this is bloomberg. ♪ nejra: revising the rule the

s.e.c. reforms the law bringing regulators closing to rolling it back. cracking the whip. the architect of gdr tells us bloomberg as tells she plans to police the countries that have adapted to the regime. we look at how countries are adapting to avoid falling foul of u.s. sanctions. welcome to "bloomberg markets: rules & returns". i am nejra cehic. it is the show where we delve into the regulatory challenges and opportunities of financial markets.